By NEIL HARTNELL

Tribune Business Editor

nhartnell@
tribunemedia.net

Ticket prices could increase by 20-25 per cent if the Government decides not to make domestic aviation ‘exempt’ from Value-Added Tax (VAT), a senior airline executive warned yesterday, adding that it would retard Family Island development.

Captain Randy Butler, Sky Bahamas’ chief executive, told Tribune Business that the Government’s plans to levy 15 per cent VAT on domestic aviation did not tally with its stated ambitions to grow the Family Islands and Bahamian tourism.

Coupled with the tax/fee increases recently imposed separately by the 2013-2014 Budget and Nassau Airport Development Company (NAD), Captain Butler said it would be “cheaper to fly to New York and back than go to Cat Island” if VAT was also imposed.

He suggested numerous alternative revenue-raising measures, including the use of user fees in the aviation sector; taking control of Bahamian air space with a Flight Information Region (FIR); and leasing out the operations/management of Family Island airports to major resort developers.

The Ministry of Finance’s explanatory notes to the October version of the draft VAT Bill and regulations, which have been obtained by Tribune Business, pointedly omit domestic aviation from the list of services/goods that are proposed to be treated as VAT ‘exempt’.

This means they will not have to levy 15 per cent on end-user consumers, but the Ministry of Finance said: “The Government proposes to exempt the supply of domestic transportation of passengers by land and water, other than in connection with a tour.”

This leaves open the prospect that VAT will be levied at the full 15 per cent rate on passenger ticket prices on inter-Bahamas routes, meaning all flights between Nassau and the Family Islands.

This will increase costs to tourists transiting Nassau to their final destination, and for Bahamians travelling to and from the Family Islands.

The Government has previously indicated it is still debating how to treat the domestic aviation industry, and it is by no means certain that 15 per cent VAT will be levied upon it.

Yet the proposed treatment contrasts sharply with the “international transportation” of passengers by airlines, which will be ‘zero rated’. This means that not only will no VAT be levied on ticket prices, but airlines will be able to claim ‘refund credits’ for VAT paid on their inputs.

Captain Butler, though, told Tribune Business that the Government was “getting it backwards” when it came to the domestic aviation industry and VAT.

“The Government is still not consulting with the stakeholders in this sector, the aviation sector, and how does this [square] with the Family Islands and getting tourists back and forth,” he said.

“Aviation is one they should exempt. This is key to getting tourists to the Family Islands. What is the strategic plan the Government has in place to develop the Family Islands, aviation and tourism?”

Noting that Bahamian-owned airlines would incur increased administrative and financial costs to cope with VAT, Captain Butler said this would add to the burden inflicted by Budget and NAD fee/tax increases.

“I think you’re going to see at least a 20-25 per cent increase in ticket prices when this is implemented,” he told Tribune Business.

“It’s going to be cheaper to fly to New York and back than to fly to Cat Island. I don’t know what’s going on here. I hope the Government will revisit this, sit with the folks and listen.”

Accepting that the Government needed to “pay its way” and raise more revenues, Captain Butler said there were millions of dollars that it was currently failing to collect from the aviation industry.

He called on it to implement user fees, where airlines were charged according to the services - and the amount of them - that they used.

The Sky Bahamas chief said that NAD’s terminal fees were based on the number of seats in a plane, not the number of passengers, meaning that flights containing few persons had to “pay the whole cost”.

“It’s like when you subsidise airlines like Bahamasair, and the Bahamian taxpayer is paying that,” Captain Butler said. “When you divide that subsidy by size of population, whether you fly on Bahamasair or not, you’re paying for that ticket.”

And he also suggested that the Government “accelerate” plans for the Bahamas to gain control of its airspace and develop a Flight Information Region (FIR).

This would allow the Bahamas to charge airlines and private planes ‘overflight fees’ for using its airspace, something that studies several years ago estimated could generate $30 million annually for the Government.

And, suggesting that the Bahamas could lease the operation and maintenance of Family Island airports to the likes of the Bimini Bay and San Salvador developers, Captain Butler said: “There are so many options sitting there, and the Government and Civil Aviation Department are quite aware of them.”